Outdated rules threaten HK's coveted role as global air cargo hub

PUBLISHED : Friday, 08 September, 2006, 12:00am
UPDATED : Friday, 08 September, 2006, 12:00am

In realtors' parlance, it would be easy to attribute Hong Kong's rise to being the world's busiest hub for international air cargo to three things: location, location, location.

The potential benefits of living next door to the world's emerging factory surfaced as early as 1980 when the National People's Congress created the Guangdong Provincial Special Economic Zones. They were cast in stone 12 years later when Deng Xiaoping, visiting Shenzhen, quelled growing controversy over the success of such zones by declaring them instruments of socialism, not capitalism.

If location was the sole reason for our success, Shenzhen or Guangzhou would have had equal opportunity to develop the region's primary air trade hub. They, of course, did not.

The flexible customs and trade regulations that sped Hong Kong's development as a 'free port' played an equally big role as location, which is why it seems odd that a handful of those rules are now impediments to the airport's fastest-growing trade sector: transshipment cargo.

Transshipment goods - those relayed through Hong Kong on their way from the point of origin to final destination - made up 85 per cent of the 3.4 million tonnes of cargo handled at Chek Lap Kok last year.

Only 504,000 tonnes was imported here for consumption or made here for export.

The segment known as 'air-to-air transshipment' - cargo moving from aircraft to aircraft - was about 20 per cent of last year's volume or 677,000 tonnes.

Relay cargo originating or destined for the mainland has been the fastest-growing part of that sub-sector, rising from a low base at an average annual growth rate of 44 per cent from 2002.

Transshipments are unique in that facilitating their smooth transition through any airport requires modern infrastructure and equally modern customs and regulatory regimes.

The latter is where Hong Kong has begun to fall behind vis-a-vis its regional rivals outside the mainland, according to consultants GHK.

The value of Hong Kong's air-to-air transshipments reached about HK$314 billion last year or 6.84 per cent of our total trade by value, according to the Airport Authority.

In its latest report, GHK said growth in some higher-value sectors of our transshipment trade is being restricted by regulations whose origins date back to the 1970s when Hong Kong was obliged to stop a wide range of 'sensitive' materials from entering China, then a closed society.

The report cites several examples of how antiquated rules divert cargo from Hong Kong airport, chief among them is our Import-Export Ordinance (IEO).

The IEO, created when trade was virtually all export or import, requires licences for a dizzying array of 'controlled goods', most of which face no such formality in the jurisdictions of rival hubs.

Moreover, the regulations are confusing and licences take two to five days to obtain, a non-starter in an industry where a premium is paid for transit times measured in hours.

The result, the report says, is that high-value goods such as medical supplies and pharmaceuticals are routinely diverted to hubs such as Singapore where modern regulations recognise the time constraints of today's supply chain. And so are all goods consolidated with them.

'In terms of [the airport's] total throughput, the volume of cargo falling foul of these restrictive regulations may be relatively small,' the report said.

'However, this ignores the volumes of cargo traffic that avoids HKIA all together and routes through competing locations that operate a more appropriate regime.'

The report also takes aim at our Trade Declaration Charge, which it says is at odds with Hong Kong's 'free port' status, labelling it little more than a 'transshipment tax'. Ostensibly, the tax - which raised HK$1.17 billion last year - was created to fund the Trade Development Council. Whatever good the council has done has been at least in part undone as cargo owners look to avoid the same tax that fills its coffers.

In a nutshell, the report shows some of the cracks forming on Hong Kong's air cargo pedestal.

Government officials will likely struggle to take the report's warnings seriously, given Hong Kong's booming air cargo industry for the past few years. Those who lack the incentive to pay attention to early warning signs need only look to the fate of our once invincible port for inspiration.